Peptech and Agenix call off merger

Sydney-based Peptech (ASX:PTD) and Brisbane-based Agenix (ASX:AGX) have called off their merger, citing Peptech's inability to provide Agenix with details of possible royalties due from Johnson & Johnson subsidiary Centocor.

The merger -- touted in April -- would have created one Australia's largest biotechnology companies, with a market capitalisation of $400 million.

Had the merger gone ahead, Agenix shareholders would have received seven Peptech shares for every 10 Agenix shares, based on a one-month weighted volume average share price of $1.61 and $0.90 respectively. Agenix option holders would also have been offered Peptech shares in consideration of cancellation of their options. No cash component was included in the merger.

Both Agenix managing director Don Home and Peptech chairman Mel Bridges admitted disappointment at the breakdown of the merger plans.

"Peptech has obviously made a very large deal of the [Centocor royalties] -- we were not able to look at the information," said Home.

"The biggest number in the whole transaction was the Centocor license royalties," said Bridges. "We were not able with the time constraints to disclose that information to Agenix."

"It's a shame these two guys didn't get together," said Southern Cross Equities analyst Stuart Roberts. "This is, after all, the second time around for both Peptech and Agenix -- they attempted this merger in 1999."

Mark Fordree of specialist biotechnology investment bank eG Capital noted that market reaction to the Agenix-Peptech merger may also have fuelled discontent.

"Since the merger was announced the shares in both stocks have spiralled down with no change in the fundamentals," he said. "With the share prices falling, it's difficult for either board to recommend it to shareholders and also given the time frames involved. A big part of the valuation of Peptech is the arbitration with Centocor. It's been very difficult for Agenix to get a handle on the appropriate valuation."

Centocor is refusing to pay Peptech royalties on patents which underpin Centocor's US$2 billion a year anti-TNF rheumatoid-arthritis therapy, Remicade. The dispute is currently in arbitration in the US.

"We don't expect the decision from arbitration to be handed down until the end of 2004," said Bridges.

Biotech investment newsletter Bioshares has estimated that a settlement with Centocor would result in royalty back-payments of at least AUD$80 million to Peptech, plus ongoing, rising royalties of $50 million a year.

Cards on the table

When the merger was announced, Agenix promoted its management, scientific and product development expertise and infrastructure. As the larger partner, Peptech was to bring to the table financial strength, intellectual property and access to domain antibody technology, through its 36 per cent investment in UK biotech Domantis.

Both Agenix and Peptech have interests in monoclonal antibody technology, Peptech through Domantis and current and potential royalty rights to therapeutics Remicade and Humira, Agenix through its deep vein thrombosis diagnostic Thromboview.

Peptech Animal Health was also keen to partner Agenix in marketing its long-duration contraceptive implant for companion animals, Suprelorin, in Australia and New Zealand.

Bridges remained sanguine about the relationship between the companies, and also about the possibility of future collaboration. "Given that we'd both understand each other's businesses quite well I'd like to think there's an opportunity to look at further collaboration -- more on the animal health side," he said. "Agenix is not in drug development. Both companies utilise antibody technology but we utilise it for different purposes."

Whether a favourable outcome for Peptech from the Centocor dispute would renew merger talks is unclear.

"There's an uncertainty about when it will settle and what the outcome will be," said Home. "We've obviously had other things going through and they've been working very well. When we get to various points along the process we'll look at it and see what we need."

No break fees are payable to either party because the merger was based upon completion of satisfactory due diligence. Had the merger proposal been rejected by Agenix shareholders, Agenix would have been liable to pay Peptech $1.5 million.

At press time, Peptech shares had risen 8 per cent to AUD$1.41, whilst Agenix shares slid 1 per cent to AUD$0.78.

Thromboview valuation upgraded

Meanwhile, on the back of an independent report by US-based diagnostic imaging specialist Dr William Rampage, Agenix today upgraded its projected peak sales of Thromboview from AUD$320 million to $570 million within eight years of the product launch. On the back of this upgrade of projected earnings, Agenix increased its valuation of Thromboview to $180 million.

Thromboview uses blood clot-binding monoclonal antibody attached to a radiolabel to locate, image and diagnose deep vein thromboses. It is currently undergoing a Phase Ib trial to investigate safety and dosage.